China Market falls in volatile trade

Headline indices of the Mainland China equity market closed down after erasing early gains of as much as 2.1% late afternoon on Monday, 15 April 2019, due to worries that the government will scale back policy loosening amid accelerating inflation outweighed credit growth that exceeded market. Local market traded higher most of the day on sign of some improvement in the world's second largest economy after stronger than expected China's March credit data and encouraging developments in the U.S.-China trade negotiations. At closing bell, the benchmark Shanghai Composite Index dropped 0.34%, or 10.84 points, to 3,177.79. The Shenzhen Composite Index, which tracks stocks on China's second exchange, shed 0.84%, or 14.62 points, to 1,723.91. The blue-chip CSI300 index sank 0.33%, or 13.10 points, to 3,975.52.

Investors risk sentiments underpinned in early trade today, on signs of recovery in the world's largest economy after release of stronger-than-expected China data last week. After trading ended for the last week, the Peoples Bank of China released credit data that suggested growth exceeded all estimates in March. Risk sentiment is also being boosted by signs the U.S. and China are nearing a trade deal after Treasury Secretary Steven Mnuchin said the U.S. is open to facing repercussions if it doesn't live up to its commitments.

The broad-based improvement in the Chinese economy from manufacturing to producer price inflation in March has boosted the market sentiment suggesting that the economy is slowly moving towards stabilisation. The pick-up in China's manufacturing PMI since the last three months have provided some relief to the investors with the March PMI figure at 50.5. The Service activity in China also quickened in March at 54.8 confirming the stability in the Chinese economy. The service sector contributes almost half to the Chinese economy. Last week's encouraging New Yuan loans and money supply surprised the market positively posting increment of 1.69 trillion Yuan in March. Total Chinese Yuan loan in the first quarter of 2019 hit a record of 5.81 trillion Yuan. Also, total social financing, a broad measure of credit in the economy, increased by four times in March at 2.86 trillion Yuan since last month. This support implies a continuation of the recovery in the economy. Investors will look for further signs of recovery in the Chinese economy in the series of economic data due to be released this week.

Encouraging developments in the U.S.-China trade negotiations also added to the positive sentiment. Last week, U.S. Treasury Secretary Steven Mnuchin said Washington and Beijing are making progress on a trade deal, which includes agreeing on an enforcement mechanism. Still, Mnuchin declined to say if the U.S. will use tariffs as an enforcement tool.

The Chinese government is confident of achieving this years main targets including economic growth of between 6% and 6.5%, Premier Li Keqiang said on Friday at a business forum in Dubrovnik, Croatia.

Jiangling Motors fell by the 10% daily limit to 27.95 yuan in Shenzhen trading after the automaker said in a weekend statement that first-quarter net income may have fallen by 84% from a year earlier. The company attributed the falling profit to decreased sales and increased marketing costs.

CURRENCY NEWS: China's yuan eased against the U.S. dollar on Monday, despite firmer mid-point fixing by central bank. Prior to market opening, the People's Bank of China (PBOC) set the midpoint rate at 6.7112 per dollar, 108 basis points stronger than the previous fix of 6.7220. In the spot market, onshore yuan last opened at 6.7060 per dollar and was changing hands at 6.7095 late afternoon trade, 47 bps weaker than the previous late session close.

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